Contributed by Messrs Eunice Tan & Partners founder Eunice Tan Mui Lee
Due to the inability to own a home in recent years via personal loans, most Malaysians have resorted to combine their income and purchase a house. However, there are some risks that joint-name purchasers or the joint-names borrowers have to take note before making the decision.
Most of the joint names purchasers are usually based on relationships such as husband and wife, boyfriend and girlfriend, siblings, parent and children, business associates and a few other scenarios to ensure for the loan sum to be approved by the relevant financial institution.
Joint-names purchasers are advised to do some due diligence on the credibility and the worthiness of the co-purchaser. It is just like a partnership where purchasers have to manage and maintain the property together. However, in reality, and based on experience, joint-name properties always tend to have problems arising in the future.
To Read More: Understanding joint loans
The most common situation is one of the borrowers does not pay the monthly instalment sum on or before the due date which will impact your name in Central Credit Reference Information System (CCRIS). As the bank will only look into whether the loan instalment is fully paid on time every month, the fact that you spend half of the monthly instalment sum will not preclude you from being identified as a bad record in the system.
CCRIS is created by Bank Negara Malaysia which synthesises credit information about a borrower or the potential borrower into standardised credit reports.
It will then affect the chances to acquire approvals on future loan applications as it reflects your previous payment behaviour. Other than the impact on the CCRIS system, if the co-owner or the co-borrowers continue neglecting to pay the monthly instalment in full for a period, the loan would then be known as a non-performing loan (NPL), and the property now will have the possibility to be auctioned by the bank.
If the reserve price of the auction property is not able to fulfil the outstanding loan sum from the bank, there is a further risk for the loanees to be filed for bankruptcy if the outstanding amount is more than RM50,000, according to the Bankruptcy (Amendment) Act 2017.
The second scenario, what if your co-owner wants to dispose of the property, but you are reluctant to do the same? It is a type of situation that is always faced by the joint-names purchasers during their loan tenure.
In such situations, you may need to negotiate with the other party to acquire the other person's share of the property. However, this may create a complicated situation if you are not able to service the loan yourself and the other party will get stuck in between.
One party may not fulfil his or her wish to maintain the property and sell it after five years, maybe due to a financial difficulty at that time. For married joint purchasers, it is also a possible risk that they could decide to proceed with a divorce.
In such situations, they may need to negotiate between the parties of all the joint-names properties. The distribution of properties must be discussed before filing in the joint petition with the terms laid down in which manner they will be settled.
Another problem that might arise is the sudden death of the co-owner. You cannot sell the property without the deceased’s estate managed to file to the court to obtain the grant of probate (deceased with a will) or grant of letter of administration (passed away without having a will) which will take some time.
It is worse when you need to deal with the executor or the appointed administrator whom you do not know at all.
As such, before buying a property with other people, kindly ensure the intention of both parties are mutual and what is the exit plan if one of the unpredictable scenarios as discussed above arises. The above scenarios mentioned are only part of the possible situations, there could be few others that might befall you.
Prevention is always better than cure.
About the Contributor
Eunice Tan is the founder of both LegalMakeover and Messrs Eunice Tan & Partners.
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